Category Archives: Economic Research

Economic Research

Namibia New Vehicle Sales – December 2016

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A total of 1,066 vehicles were sold in December, a 19.1% m/m drop from the 1,317 vehicles sold in November, and 32.7% lower than December 2015 when 1,583 vehicles were sold. For the calendar year of 2016, 16,598 new vehicles were sold, down 21.9% from the 21,246 vehicles sold over the previous calendar year. Vehicle sales have been lower than both 2015 and 2014, but still slightly ahead of 2013 levels.

Vehicle sales have been contracting on a year on year basis since mid-2015. The slowdown has been felt in both passenger and commercial vehicles, with passenger vehicle sales down 28.3% y/y and commercial vehicle sales down 35.4%. Within the commercial vehicle segments the light commercial category, which makes up the bulk of sales, has decreased by 32.2% y/y, while medium commercial vehicles sales have decreased by 28% y/y and heavy commercial vehicle sales have decreased by 76.4% y/y.

Passenger vehicle sales decreased by 17.8% m/m to 440 vehicles in December, while commercial vehicles sales decreased by 19.9% m/m to 626. This brings the total number of passenger and commercial vehicles sold in 2016 to 7,006 and 9,592 respectively. Of the 9,592 commercial automobiles sold, 8,838 were classified as light, 277 as medium and 477 as heavy commercial.

In 2016 Toyota and Volkswagen dominated the passenger vehicle market based on the number of new vehicles sold. Toyota and Volkswagen claimed 29% and 28% of the market respectively. They were followed by Ford at 7% and Mercedes at 5%. The rest of the passenger vehicle market remains very fragmented.

Toyota also remains the leader in light commercial vehicle sales with 48% of the market, followed by Nissan at 16%. Ford and Isuzu each claimed 11% of the number of light commercial vehicles sold in 2016. In the heavy category, Scania is the largest seller, commanding 43% of the market share.

The Bottom Line

Throughout the period of 2014 all the way to mid-2015, we saw robust growth in vehicle sales, which was driven by a strong consumer base supported by expansionary fiscal and monetary policy and real wage growth. However, 2016 was not a particularly good year for new vehicles as December numbers brought the year to a disappointing close. The slowdown was driven by two main factors. Firstly, the reduction in government spending had a direct and indirect effect on the demand for new vehicles. Both direct orders from government and the weaker economic environment have reduced the demand for capital goods. Secondly, higher interest rates and amendments to the Credit Agreement Act (which requires a deposit of 10% on all vehicle loans and limits repayment periods to 54 months) have reduced the availability of credit used to purchase these capital goods.

We expect the slowdown to continue into 2017. The full effect of interest rate increases normally takes 18 to 24 months to filter through to all areas of the economy. Additionally, lower government spending on capital expenditure should also put pressure on vehicle sales for the foreseeable future.

Building Plans – December 2016

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A total of 131 building plans were approved in December with a value of N$108.2 million. For the 2016 calendar year the City of Windhoek approved 1,872 building plans, well below the 2,467 plans approved in 2015. Cumulatively 2016 witnessed the approval of N$1.95 billion worth of plans, also well below the 2015 figure of N$2.20 billion.

The largest portion of building plan approvals were made up of additions to properties, from both a number and value perspective. Cumulatively 1,452 additions to properties have been approved with a value of N$ 926.8 million, 15.2% less in value terms compared to 2015 and 497 less than the number of additions observed in the previous calendar year.

New residential units were the second largest contributor to building plans approved. 286 residential units were approved in 2016, 96 less than 2015 when 382 units were approved. In dollar terms, N$553.3 million worth of residential plans were approved, 18.6% higher than the previous calendar year.

The number of commercial units approved in 2016 amounted to 84, valued at N$460.0 million. This compares to 136 units valued at N$636.9 million for the calendar year of 2015. On average over the last 10 years, 81 commercial units valued at N$496.6 million were approved annually.

The 12-month cumulative number of building plans approved ticked up slightly at the end of 2016. On a 12-month cumulative basis, 1,872 building plans were approved, 24.1% less than the same measure for December 2015. This figure has nearly halved from the peak in September 2013 to lows last seen in 1997. As a leading indicator for economic activity in the country this reinforces our view that we will see negative economic growth for the 2016 reporting period.

A lack of serviceable land has often been cited as the reason for the slowdown in building plans. The Municipality has indicated that there is a high demand for land, but little land left around Windhoek that can be developed. As a result, additions to existing property have exceeded new construction fourfold. However, the slowdown in additions point to less potential value in additions or possibly saturation of the available space.

At the beginning of 2016, the outlook for construction was relatively positive due to several large government projects expected to commence within the year. We revised this view several times during 2016, and our suspicions were confirmed at the most recent midterm budget. Government has cut both the development and operational budgets quite aggressively. Spending on construction was cut by a material N$1.5 billion in this financial year alone and a moratorium has been placed on all government construction projects going forward. This should have a negative effect on economic activity in general, but the construction sector in particular. Thus, we continue to forecast a contraction in the construction industry for 2017.

Namibia CPI – December 2016

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The Namibian annual inflation rate remained at 7.3% y/y in December, unchanged from November. Prices increased by 0.2% m/m. The yearly increases were largely driven by the food and non-alcoholic beverages category which increased by 12.5% y/y, as well as the housing, water, electricity and other fuel category which increased at a rate of 7.6% y/y. Overall prices in five of the twelve basket categories increased at a faster rate than during the preceding month, five at a slower rate and two at the same rate as during the preceding month. At the end of December goods inflation was notably higher than that of services. Prices for goods increased 7.8% y/y while services were 6.6% more expensive on a y/y basis.

Food and non-alcoholic beverages, the second largest basket item, was the largest contributor to annual inflation. Food inflation is currently running at 12.5% y/y, up from the 11.5% y/y figure seen in November. The sub-categories of food generally showed strong monthly increases of between 0.7% and 1.0%, except for quick acceleration in the prices of meat, up 3.1% m/m, and fruit which increased 3.0% m/m. On an annual basis, fish prices have increased by 25.9% y/y while confectionaries are 17.5% more expensive. The upwards pressure on food prices is mainly a result of the drought in Southern Africa which could ease as the rainy season reduces some the dependence on expensive foreign imports.

Housing and utilities was the second largest contributor to annual inflation, due to its large weighting in the basket. This category remained flat m/m and increased 7.6% y/y. This resulted in a contribution of 2.1% to the annual inflation figure. The high level of inflation in this category can be attributed to annual increases in rentals as well as increasing utility costs. Rental increases are normally a yearly adjustment in January. Rental costs increased 7.0% m/m in January 2016 and has remained at a 7.0% y/y level ever since. Given the current state of the housing market, it is possible rental escalations may be lower next year and, and as a result of the high base, we may see this category contribute less to inflation going forward. Most of the subcategories remained unchanged m/m, but water supply, sewerage service and refuse collection is still increasing by 12.4% y/y while electricity is 9.1% more expensive than last December.

The Alcohol and tobacco category displayed increases of 5.6% y/y and 0.0% m/m. Tobacco prices increased by 0.9% y/y, while alcohol increased at a much quicker pace at 6.8% y/y. Transport prices increased by 3.9% y/y in December, purchase of vehicles increased by 10.8% y/y while public transport is 0.5% cheaper than one year ago. Pump prices have increased early in January and global oil prices are on an upward trajectory. As a result transport inflation should increase in 2017. Hotels, Cafes and restaurants prices decreased by 0.6% m/m and package holidays and accommodation were also 3.9% and 1.9% cheaper respectively on a monthly basis as the service industry competed for clientele over the festive season.

Namibian inflation remains higher than in South Africa, and expectations are for high inflation rates to continue in both countries. South African inflation is expected to average 6.4% in 2016 and 5.8% in 2017, according to the SARB’s November MPC forecast. These expectations are largely driven by a weaker real effective exchange rate and the pass though effect of higher Import prices. The effect of higher food inflation due to the drought, and the pass-through effect of South African food prices on Namibia will likely cause the double digit increases in food prices to continue in the short term, although likely to ease around April/May of 2017.

Due to SA inflation expectations which return to the target band in 2017 and the low level of growth we do not anticipate repo rate increases in response to inflationary pressures from the SARB. Annual inflation averaged 6.7% in 2016 and we expect this to moderate to 6.4% in 2017.